In my first blog post, I contrasted the U.S. manufacturing industry with the newspaper industry. I indicated that both industries are similar in that each one is hemorrhaging jobs. Some of you commented about that post, pointing out that US labor costs—which are substantially higher than those in China and other developing countries—have caused US manufacturing companies to move work offshore.

There are other factors as well that have caused the loss of US manufacturing jobs. Industrial production has declined during the worst recession since the great depression. All things being equal, the drop-off in demand translates into fewer jobs. Second, the Chinese are manipulating (undervaluing) their currency, making the value of Chinese goods artificially low. This stimulates demand for Chinese producers thereby creating jobs for the Chinese economy at their trading-partners’ expense.

But on a structural level, what is happening to US manufacturers is similar to what has happened to our farmers. In 1900, the farming sector employed approximately 11.6 million people, representing the largest sector of the work force (43.5%). In 2000, the farming sector employed only 3.3 million people, a 72% decline in employment. Farming is now the smallest sector of the workforce (2.4%). Although there are significantly fewer people working in agriculture, the output from this sector of the economy has grown dramatically, spurred by technological innovation.

Similarly, US industrial production has more than quadrupled since 1950, despite the fact that US manufacturing now employs fewer workers. As in the agricultural sector, improvements in productivity–in effect, the substitution of technology for labor– has translated into job losses in the manufacturing industry.

Despite the bleak job picture, US manufacturing is still strong overall, if one uses the level of industrial production as a measure. As pointed out in a Barron’s article, as recently as 2007, American factories produced 5,250 complete civilian aircraft, 15,341 complete civil-aircraft engines, 81 million metric tons of raw steel, 10.7 million motor vehicles, 25.6 million computers,…and $125 billion of pharmaceuticals. We are still the worlds’ largest manufacturer. Although some producers are actually moving some work back to the U.S., the jobs that have been lost will probably never come back.

Eric Zorn of the Chicago Tribune wrote an article (Closed for business) that described the demise of the Ann Arbor News. According to Zorn, Ann Arbor has the dubious distinction of being the first major city without a daily newspaper. There is a gloomy undertone in the article, and understandably so. The death of this newspaper will have devastating consequences for many of its 274 employees.

However, upon further reflection, what is happening to the newspaper industry–in terms of job creation–is similar to what has happened to the manufacturing industry. From 1997 to 2007, the manufacturing sector shed over 3.4 million jobs (Source: State of Washington Office of Financial Management). And this long term trend continues: during the current recession, over 2.0 million manufacturing jobs have been lost (Source: U.S. Bureau of Labor Statistics).

To see the impact behind these statistics, one only has to ride the Green Line elevated train from Oak Park, Illinois–an inner ring suburb–to downtown Chicago. One observes the hollowed-out shells of buildings where many people in the goods producing industries worked. And these manufacturing jobs were well-paying jobs.

But the TV did not replace the radio. Similarly, the decline of print journalism does not foreshadow the demise of the newspaper industry. For reading, some people prefer the touch and feel of hard copy over screens. In like manner, the outsourcing of many manufacturing jobs does not suggest that manufacturing is “dead.” In fact, the US is still the leading global manufacturer producing US$2,696,880 millions (2007) in industrial output. The US share of global output is 20% versus 12% for China (source: WSJ).

Economics account for the decline of both the US manufacturing and print-newspaper industries. Although the reasons are numerous, two prominent ones relate to changes in technology and productivity. In the case of the newspaper industry, the growth in internet technologies has revolutionized the way we obtain information. In the case of manufacturing, capital investments in automated equipment and computer technologies have greatly increased productivity resulting in significant job losses.

Still, in any capitalistic economy, there are always going to be winners and losers. One can only hope that from the ashes of the old industries, new ones will arise.